The Euro finished in the middle of the pack this past week, gaining +1.02% against the worst performing US Dollar (the EURUSD closed at $1.3279), while losing -1.43% to the top performing Japanese Yen (the EURJPY closed at ¥130.42). Right away, from the performance of the Euro versus the two traditional safe havens, one can see that the past five days haven’t been focused around any single theme that might provide general direction for market participants.

Whereas this past week we held a “neutral” fundamental rating for the Euro, the last week of July and the first two days of August could see a more “bullish” Euro emerge. There is considerable event risk on the docket, with four “high” importance events on the DailyFX Calendar versus zero last week, all of which have the potential to stoke hopes of a near-term revival of growth prospects in the Euro-Zone’s larger periphery countries.

On Tuesday, after several weeks of improved secondary data – mainly, PMI surveys – the 2Q’13 Spanish GDP report will be released. Spain remained in a deep recession last quarter, but the worst may be over should the report meet expectations. According to a Bloomberg News survey, the Spanish economy is forecasted to have contracted by a yearly rate of -1.8% versus -2.0% prior.

While these recessed figures speak to a major problem with the Euro-Zone periphery in general – deteriorating labor markets – they do offer a glimmer of hope that, despite recent corruption allegations, the current Spanish government may be remain best-equipped to guide the country closer to growth.

Should the 2Q’13 Spanish GDP report come in even a touch hotter than expected (which would not be too surprising given the steady improvement of actual Euro-Zone data over forecasts over the past month), the Euro would be well-positioned to have a strong remainder of the week.

On the German docket, July inflation figures released on Tuesday shouldn’t offer any evidence for a shift in European Central Bank policy in one direction or another, while the July labor market report should see Europe’s largest economy’s labor market decisively in neutral.

These data, combined with the July Euro-Zone CPI figures due on Wednesday (core and expectations), give reason to believe that the ECB will stand pat this week, which too could be bullish for the Euro.

Last policy meeting, the ECB introduced forward guidance to its tool kit, a measure intended to wield the communicative policy power of the central bank into setting rate expectations beyond 12-months. Even though interest rates are to stay low for several years in the Euro-Zone, the recent improvement in secondary data gives reason to believe that a hold at the ECB’s August policy meeting on Thursday could be a vote of confidence in current policies, and thus, in the Euro.

For the EURUSD to continue its recent charge higher and clear its mid-June (pre-FOMC) swing highs above 1.3400 against the US Dollar, it will require some exogenous help, although a strong Spanish GDP report and a hold by the ECB would provide the Euro will the most fertile ground for additional gains.

On Wednesday, the Federal Reserve holds its July policy meeting, and rumors of a change in the Fed’s forward guidance strategy have already boosted the EURUSD. Volatility around the Euro should remain high through the end of the week, with the always-important July US Nonfarm Payrolls report due on Friday. When all is said and done, the Euro is on strong fundamental footing for the coming five days. –CV

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